portfolio resilience
Case studies on building a resilient portfolio for uncertain times
Samuel Zief, Global Macro Strategist & Head of Global FX Strategy
Harry Downie, Global Investment Strategist
Andrew P. VanWazer, Head of U.S. Wealth Management, Portfolio Advisory Group
Published Apr 29, 2025
This year’s market turbulence highlights the power of diversification A global multi-asset portfolio can be a strong anchor during these uncertain times. At the heart of crafting a thoughtful investment strategy is the big question: What do you want your money to do for you?
These three clients’ experiences illustrate how intentionally aligning your portfolio with your long-term goals prepare you for any market environment.
An executive contemplates his concentrated stock
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History suggests the risk of investing in a losing company are high: Over close to 45 years of market performance, almost half of all publicly traded U.S. companies have suffered a catastrophic loss in value.1
The good news is that we can utilize a range of strategies to manage concentrated positions, helping our clients de-risk and diversify. Many opt to retool using a mix of smart, tailored approaches incorporating their investment views, financial goals and tax and legal considerations.
The executive’s challenge
Isaac, a widower with two adult children, just retired from his longtime role as a senior executive at a listed pharmaceutical firm. He has much of his wealth in company stock. In one volatile week, its value plunged from USD50 million to USD30 million. Yet Isaac is hesitant to sell his shares outright.
While he’s no longer tied up by his former company’s insider policies on employees selling their stock, selling could trigger potential capital gains taxes. Additionally, he wants to pass on his wealth to his children and future generations, hoping to retain the potential for the shares to appreciate further.
Isaac and his banker evaluated how diversification could benefit him by stress-testing his existing portfolio under different scenarios. The results highlighted that his portfolio’s concentration produced a wide dispersion of possible outcomes—a range Isaac found unsettling. Overall, the aim was to build a more resilient, diversified portfolio.
Exploring the toolkit: Borrow, hedge, monetize and/or give?
Isaac and his banker considered several strategies:
- Borrowing against his concentrated stock holding could offer liquidity and flexibility. And by retaining his company stock, he would participate in any future upside.
- Hedging the position with options or structures could mitigate volatility and fine-tune the amount of downside exposure he’s comfortable with, and without selling the position, the strategy would also allow for potential future appreciation.
- Monetizing, using a combination of hedging and borrowing strategies, which would let him access the value of some (or all) of his stock position and generate liquidity upfront. Again, this happens without selling, maintaining the potential for appreciation.
- Gifting and charitable giving strategies, while navigating his complex tax considerations.
Isaac’s approach: Monetizing for flexibility and diversification
Since Isaac wants to keep his shares and is mindful of tax considerations, he decides to monetize their value to get cash now. A common way to do this is with a variable prepaid forward (VPF), also known as a funded collar in some jurisdictions, which blends borrowing and hedging strategies. He receives a cash advance in exchange for agreeing to transfer the shares (or their cash equivalent) in the future to repay the borrowed amount.
With this newfound liquidity (pre-tax) in hand, Isaac is able to invest in a diversified portfolio, reducing the risk of his overall holdings, and helping smooth the ride of any volatility while he still holds his concentrated position.
When the monetization strategy expires, Isaac can repay the cash advance with his shares or their cash equivalent, no matter their current price—which offers a built-in hedge against a stock decline. In the future, Isaac and his banker will consider other strategies for his remaining shares to continue building portfolio resiliency, keeping him prepared for life's uncertainties so he can reach his long-term financial objectives.
A retiree is uneasy about market volatility
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2025 has seen a lot of volatility, amid mounting worries about tariffs and their impact on the economy. Major market swings can be unnerving. These are the times investors want assurance that their portfolios can withstand uncertainty.
Assets beyond traditional stocks and bonds can help reduce portfolio risk. For instance, gold has been a powerful support during times of uncertainty and geopolitical flashpoints. Structured products can manage risk by cushioning against losses while keeping the door open for future gains. And hedge funds can skillfully navigate market moves. Such investment vehicles may offer income and the potential to move in different directions—uncorrelated—from publicly traded stocks and bonds.
Albert, a 70-year-old retiree with a financial services career background, worries that his 60/40 stock-bond portfolio isn't prepared for a variety of market risks. He’s concerned about stock market swings and that inflation could spike on all the tariff news, which would be difficult for bonds. He remembers when 2022 saw stocks and bonds both selloff in tandem.
To better insulate his portfolio, he wants to incorporate a third lever outside of stocks and bonds, one meant to improve its Sharpe ratio—more return for the risk he’s taking (or the same return with less risk).
Exploring the toolkit of less-correlated assets
Albert’s banker suggested several ideas:
- Add about a 5% allocation to gold: A long-term diversifier with low correlation to other asset classes, gold can enhance portfolio resilience, especially during times of stock declines or heightened geopolitical tension (as shown in chart).
During past periods of market turbulence, gold has helped smooth volatility, as investors often view it as a safe haven asset. In recent years, gold has also gained structural support, with central banks holding 20% of their FX reserves in gold and demand expected to grow. He could fund this by taking a little from equities and fixed income.
Gold has protected during big equity drawdowns, but it wasn't always a smooth ride
Performance in 5 largest equity drawdowns since 12/31/1975
Source: Bloomberg Finance L.P. as of 1/31/25.
Past performance is no guarantee of future results. It is not possible to invest directly in an index.
- Evaluate a diversified set of macro hedge funds (about a 10% allocation): Macro hedge fund managers look to invest based on the major global trends—predicting policy changes, interest rates, FX trends and other salient factors.
Historically, they've improved returns during crises like the credit crunch, dot-com bubble burst and pandemic sell-off, suggesting such strategies can be helpful in diversifying against broad public market risks. Macro hedge funds’ three-year returns were about 4% annually as of April 1, 2025; hedge funds overall have returned close to 6% annually.2 He could fund the allocation from fixed income.
- Structured products: These tools are designed to offer asymmetric returns—for instance, providing a buffer against losses while still allowing for exposure to potential gains. By combining derivatives with traditional securities, structured products can be tailored to meet Albert’s specific investment needs, helping to manage risk and still capture growth opportunities. Albert's banker suggested an allocation of up to 15%.
- Evaluate the type of equities in his portfolio: A portfolio constructed in recent years (and even up to 10 years ago) and not rebalanced will have become heavily tilted toward growth companies in the U.S. That may need rebalancing, to include more value stocks and other regions’ equities.
The latest market downturn has been led by growth stocks. As a result, owners of portfolios that have not been rebalanced may feel the recent volatility more intensely.
Albert’s approach: Getting active with gold and structures
Selling her business leaves a founder in cash
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Liquidity events, for instance selling a business or receiving an inheritance, are exciting opportunities. But too much cash also brings complexity—and comes with an opportunity cost.
Remaining in cash would allow inflation to erode its value and leave your wealth vulnerable to central bank rate cuts that lower short-term yields, while also foregoing bonds’ income stream.
Lucia, 56, recently sold her software development company for USD50 million. She and her partner now face the prospect of investing the influx of cash, after having just a mutual fund portfolio they constructed themselves previously. As they scale back from work, they plan to renovate their home, buy a beach house, and spend more time with their three adult children and first grandchild.
Preserving their wealth is a top priority, both for now and to leave something for future generations.
Lucia knows they need to invest to reach their long-term goals, but with the market so volatile, it feels risky. She worries about losing money when it seems safer to keep their cash in the bank.
Exploring the toolkit: Aligning investments with goals
Lucia’s banker helped identify their risk tolerance—moderate, in between conservative and aggressive. They also talked through diversifying beyond tech; a preference for funding their lifestyle using investment income, rather than spending down cash reserves and an openness towards taking advantage of tactical and thematic investment opportunities as they arise.
He recommended:
- Creating a goals-based plan that segments assets into four “buckets”—liquidity (cash), lifestyle needs (income), growth (for sustaining wealth in perpetuity) and legacy (for passing on to family or charity), and determining the appropriate amount for each.
- Choosing a timeline—phasing in or all at once: Given market volatility, a gradual phase-in can help manage timing risk and support the couple in maintaining investing discipline.
- Building a strong, resilient core portfolio: Considering their medium risk tolerance, a balanced allocation that aims for the middle ground between capital preservation and appreciation, seems most suitable. Their strategic asset allocation: 35% fixed income and cash; 55% equities and 10% alternatives, a mix of income generating and growth assets. The portfolio can also be designed to be aware of any tax implications.
- Considering tactical opportunities: The cash opens the door to identifying emerging shorter-term opportunities in trends and areas of interest they can invest in through individual portfolios, mutual funds, ETFs or alternative investments.
Lucia’s approach: The full toolkit
More ways to build a resilient portfolio
Sharpe Ratio: The Sharpe Ratio is a financial metric used to evaluate the risk-adjusted return of an investment or portfolio. The Sharpe Ratio is calculated by taking the difference between the return of the investment and the risk-free rate, and then dividing that difference by the standard deviation of the investment's excess return.
S&P 500 Index: The S&P 500 Index, or Standard & Poor's 500 Index, is a stock market index that measures the stock performance of 500 large companies listed on stock exchanges in the United States. It is one of the most commonly followed equity indices and is considered a benchmark for the overall performance of the U.S. stock market.
Russell 3000 Index: The Russell 3000 Index is a capitalization-weighted stock market index that seeks to be a benchmark of the entire U.S. stock market.
HFRXM Index: The HFRX Indices utilize a rigorous quantitative selection process to represent the larger hedge fund universe.
1The analysis was performed for Russell 3000 Index companies from 1980–2023. Here, we define catastrophic as a 70% peak-to-trough decline in value that hasn't recovered. In addition, two-thirds of publicly traded U.S. companies have underperformed the index. Jacob Manoukian and Kenneth Datta, “The Agony & the Ecstasy,” J.P. Morgan Private Bank, October 3, 2024. https://privatebank.jpmorgan.com/nam/en/insights/markets-and-investing/ideas-and-insights/the-agony-the-ecstasy
2HFRXM Index for Macro Hedge Funds. HFRXGL Index for global hedge funds. Source: Bloomberg Finance L.P. Data as of April 1, 2025.
Key Risks
All case studies are shown for illustrative purposes only and should not be relied upon as advice or interpreted as a recommendation. They are based on current market conditions that constitute our judgment and are subject to change. Results shown are not meant to be representative of actual results or experience of other individuals. Past performance is nota guaranteeof the future performance of an investment.
Investments in commodities may have greater volatility than investments in traditional securities, particularly if the instruments involve leverage. The value of commodity-linked derivative instruments may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments. Use of leveraged commodity-linked derivatives creates an opportunity for increased return but, at the same time, creates the possibility for greater loss.
As a reminder, hedge funds (or funds of hedge funds) often engage in leveraging and other speculative investment practices that may increase the risk of investment loss. These investments can be highly illiquid, and are not required to provide periodic pricing or valuation information to investors, and may involve complex tax structures and delays in distributing important tax information. These investments are not subject to the same regulatory requirements as mutual funds; and often charge high fees. Further, any number of conflicts of interest may exist in the context of the management and/or operation of any such fund. For complete information, please refer to the applicable offering memorandum.
Derivatives may be riskier than other types of investments because they may be more sensitive to changes in economic or market conditions than other types of investments and could result in losses that significantly exceed the original investment. The use of derivatives may not be successful, resulting in investment losses, and the cost of such strategies may reduce investment returns.
Note: This information is intended to be a high level overview of potential hedging strategies that can be executed through OTC options to achieve specific goals. These strategies may not be suitable for all clients. This is not intended as an offer or solicitation for the purchase or sale of any financial instrument. In discussion of options and option strategies, results and risks are based solely on the hypothetical examples cited; actual results and risks will vary depending on specific circumstances. Clients are urged to consider carefully whether option or option-related products in general, are suitable to their needs. For a complete discussion of risks associated with any investment, please review offering documents and speak with your investment specialists. The above is a hypothetical example for illustrative purposes only and should not be relied upon in making an investment decision. These examples not reflect actual or future performance results of any specific vehicle, and are based solely on the hypothetical illustration cited. Key risk factors include market risk, liquidity, and credit risk of the issuer. 100% Max Loss on Structured Investments . Please refer to risk disclosures and glossary of terms for more information. REMINDER: Purchasing structured products involve derivatives and a higher degree of risk factors that may not be suitable for all investors. In certain transactions, investors may lose their entire investment, i.e., incur an unlimited loss. Please refer to risk disclosures for more information. Investing in Structured Notes involves a number of significant risks. We have set forth certain risk factors and other investment considerations relating to the investment below. Not all investments are suitable (or in the best interest) for all investors. You should analyze the Structured Notes based on your individual circumstances, taking into account such factors as investment objectives, tolerance for risk, and liquidity needs.
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